The trend of companies in HCM City making losses continues, with three-quarters losing in the first quarter, and government policies to support them are not proving very effective.

At a meeting held earlier this week to review tax collection and gather opinions for amending the Law on Tax Management, the Tax Department said only 25.5 per cent of companies were profitable in the first quarter.

Nguyen Trong Hanh, deputy head of the department, said with the number of loss-making businesses increasing, tax revenues were going down despite the introduction of many policies to help the corporate sector.

More than 40 per cent of companies had made profits in 2009, but it has been downhill since, with the number falling by nearly 2 per cent in 2010 and a further 5 per cent last year.

National Assembly deputies representing the city wanted to know at the meeting why the Government's policies have not reversed this trend.

Business representatives told them the main reasons were the high inflation and their inability to get bank loans at moderate interest rates.

The deputy head of the State Bank of Viet Nam's HCM City office admitted that the measures to help businesses access credit only focused on enlarging the number of categories of eligible borrowers and not on loosening credit.

"Deferring and reducing income tax payment, one more measure announced by the Government, does not make a significant difference to businesses' fortunes since many do not even have to pay tax because they make losses," the business representatives said.

They wanted the Government to instead introduce stimulus policies such as subsidies for their promotional sales and loans for workers to buy houses.

Tax revenues drop

Another reason for the drop in tax revenues, a deputy head of the HCM City Customs Office said, was that many companies were just not paying their taxes.

More than VND1.42 trillion (US$67.6 million) in back taxes were due by the end of last year.

The number of companies that pay value-added tax decreased from 28 per cent in 2009 to 19 per cent in the first quarter.

He also blamed the poor co-ordination between relevant bodies and inappropriate regulations for claiming taxes for the high rate of back taxes.

For instance, failure to pay taxes in time only attract a fine of 18 per cent. With getting bank loans becoming very hard, many enterprises choose not to pay their taxes.

The fall in sales, as seen from businesses' low revenues and increasing inventories, has also caused a decline in value-added and income tax collections, according to Hanh.

Hanh pointed to transfer-pricing and tax frauds and ineffective Government oversight as other reasons for the fall in tax collection.

He said any amendments made to the tax law should make control over transfer-pricing more effective.

He also called for introduction of policies that encourage businesses to pay taxes and help them obtain loans.

The NA deputies met with officials from the central bank's HCM City office and tax and customs offices to solicit suggestions ahead of the upcoming NA session.